Monday 10 November 2008

Funds shift focus to retail property

Investment in the mainland retail market is expected to rise as more institutional funds channel capital into the sector, which is less restricted by the government, industry observers say.

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Guanyu said...

Funds shift focus to retail property

Sandy Li
10 November 2008

Investment in the mainland retail market is expected to rise as more institutional funds channel capital into the sector, which is less restricted by the government, industry observers say.

Early this month, Grosvenor formed a US$600 million fund to buy shopping centres while private equity fund Ajia Partners launched a US$400 million retail property fund, the Ostara China, last month.

“I do see [more] capital shifting to the mainland retail market,” an industry watcher said.

With office demand weakening amid the global financial crisis and no significant improvement in residential prices in the near term, he expects rising retail rents on the mainland to be sustained by domestic consumption.

The Ostara China fund was formed to buy underperforming shopping centres or those being built on the mainland.

“Retail centres in the right locations that cater to local demand should do quite well. I continue to believe the mainland’s domestic consumption and middle-class growth will be key drivers going forward,” said Goodwin Gaw, the chairman of Hong Kong-based real estate fund Gateway Capital.

The fund has a 20 per cent stake in a retail complex, the Village at Sanlitun, in Beijing, with the remaining 80 per cent held by Swire Properties.

Last week, Gateway Capital opened its own shopping centre, Plaza 353, in Nanjing East Road, Shanghai’s busiest shopping destination.

Mr Gaw said the fund would expand its mainland retail portfolio. “We have built a highly capable in-house retail team to expand our investments in the retail sector. Many of the large second-tier cities like Chengdu, Chongqing, Shenyang, Dalian have quite a bit of growth potential.”

Another industry observer said big and small funds were looking at retail properties even not in traditional prime locations. “They are interested in retail complex ranging from 8,000 square metres to 10,000 square metres,” he said.

Some of these retail properties were located beneath residential blocks, he added.

Mainland developers were likely to dispose of their retail portions as they lacked experience in operating a shopping centre, he said.

But he believes falling prices would allow buyers to close deals faster, saying more transactions would be closed next year.

On October 23, Blackstone bought a 95 per cent stake in the 26,312 square metre Changshou Commercial Plaza in Pudong for 928.2 million yuan (HK$1.05 billion), a 13.47 per cent discount to the original asking price.

Property consultant DTZ remains upbeat on Shanghai’s retail market. It expects retail rent in the city to continue rising in the face of a lack of supply particularly in prime locations.

Average retail rent in Shanghai reached 51.4 yuan per square metre per day in the third quarter, an increase of 2 per cent from the previous quarter, and a bigger increase of 4.1 per cent year on year.